The gatekeeper

FINANCE & ECONOMICS

Italian banks and the EU

Feb 17th 2005 PARIS
From The Economist print edition

The European Commission tells Italy to open its banking market

EUROPE'S much-promised single market in financial services is taking a long time to create. It might never be finished, indeed, without a fight or two. So it may be a good sign that, after only a couple of months in his job, Charlie McCreevy, the European Union's commissioner for the internal market, is squabbling with Antonio Fazio, governor of the Bank of Italy.

On February 8th Mr McCreevy wrote to Mr Fazio, asking him “to correct the impression” that he is trying to stop foreigners buying their way into Italy's banking market. Several newspapers had reported an unofficial deal between Mr Fazio and the Italian government to block foreign takeovers. Before his official reply was acknowledged on February 17th, the governor had responded indirectly, in a speech last weekend. Foreigners, he said, own on average 17% of the capital of Italy's four largest banks, compared with 7% of Germany's top four and 3% of France's.

That's not the point, says Oliver Drewes, a spokesman for Mr McCreevy: “We are talking about foreigners taking a controlling stake in Italian banks.” According to Italian banking law, the purchase of any more than 5% requires Mr Fazio's nod. On his watch, which began in 1993, no foreign institution has bought a majority stake, although a few have grumbled that they would have but for Mr Fazio's opposition. So far Banco Bilbao Vizcaya Argentaria, Spain's second-biggest bank, has acquired 15% of Banca Nazionale del Lavoro; Santander Central Hispano, Spain's number one, has 8.6% of Sanpaolo IMI. ABN Amro, a big Dutch bank, owns slices of Capitalia and Banca Antonveneta.

Mr Fazio is over-protective because his country's banks are likely to be on several shopping lists should cross-border European bank mergers begin in earnest. Italy's banking market is fragmented and its banks are small. UniCredit, the largest by market capitalisation, ranks only 15th in Europe. It could be bought for a fraction of the price of a top German or French bank.

The governor might be trying to protect the banks' corporate customers too. Loans to large companies such as Parmalat, a dairy group that went spectacularly bust in 2003, and Fiat, a struggling carmaker, are not priced on an economic basis, says Alessandro Roccati, of Fox-Pitt, Kelton, an investment bank; a foreign buyer would surely reprice them, making the companies' restructuring harder than it already is. Small and medium-sized firms might also find credit tighter were their banks bought by unsympathetic foreigners.

As long as Mr Fazio is in charge, Italy's big banks will stay in domestic hands. Parliament is discussing a proposal to limit his term (remarkably, the central-bank governor enjoys life tenure) and to transfer the approval of bank mergers to the antitrust authority, but Italian lawmaking is notoriously slow. The commissioner could take Italy to the European Court of Justice, but Mr McCreevy's people say that is still miles off. The banks' foreign suitors may simply have to wait, and hope that Mr Fazio's successor is more amenable.

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